Getting Real About the Minimum Wage

This should be a very easy subject for the conservative and liberal to understand if we look at the issue realistically.  First off, increasing the minimum wage does not alleviate poverty.  It also has a disproportionate effect on small businesses- the main driver of job growth in this country- since they are less able to pay increased wages.  It certainly does not encourage wage growth in because businesses are then financially restricted in rewarding their more productive workers with raises.  And it also leads to increased consumer prices since the increased payroll costs will simply be passed on.

Today, the federal minimum wage stands at $7.25 per hour.  Most states have a minimum wage which exceeds that rate.  Others recently passed increases in 2014- Alaska, Arkansas, Nebraska, and South Dakota.  These four states are somewhat reliable red states yet their residents approved a rather liberal belief.  Why?  Because to the voter, it is a no-brainer; who wouldn’t turn down more money in their paycheck?

However, a more sober look at the situation reveals that increasing the minimum wage is a solution in search of a problem.  According to the Bureau of Labor Statistics, there are 75.9 million hourly-paid workers in the US of which 1.5 million make minimum wage, or 4.3% of that workforce.  Others make technically less than minimum wage- tipped workers, certain students, the disabled- and they total 1.8 million.  When we look at all wage earners in the United States, we discover that a mere 2.6% of the workforce makes minimum wage.  Increasing the wage would affect ONLY 2.6% of the workforce.

And who are the minimum wage workers?  Close to 65% are part-time workers while half of them are under the age of 24.  Most of them are employed in the food service industry, with the next largest group being retail sales.  Despite the accusations against large department stores like Wal-Mart being behind opposition to minimum wage increases, the characteristics of the average minimum wage earner were the same long before the advent of Wal-Mart.

Some people have proffered the theory that increases in the minimum wage have good economic effects- a “trickle up” theory of economics.  Assume a person makes minimum wage and gets paid for 2,080 hours per year as a full time worker.  A $1 increase in the minimum wage would increase their annual wages $2,080.  That may be enough to make a difference in the lives of a very few people, but it would hardly solve the problem of poverty in America.  And while $2,080 a year (or $40 a week) may buy a few more things, the purchasing power of those extra dollars is roughly equivalent to levels in 1985 when inflation is factored into the equation.

To defuse the rhetoric, increasing the federal minimum wage to $8.25 per hour would not have dire economic consequences since it would effect a very small percentage of the workforce.  Perhaps, the GOP should be at the forefront of this legislation in exchange for Democratic concessions elsewhere.  States, of course, could do what they want.

However, there is a disturbing trend at the state level that should NOT be adopted at the federal level and should be thwarted at the state level:  indexing future increases to inflation.  The reason is obvious.  Suppose this is the case in your state and the minimum wage is increased.  Businesses pass on those increases in labor costs to the consumer in the form of higher prices.  The increase in consumer prices affects the rate of inflation which then triggers another increase in the minimum wage, and so in an endless cycle of inflation and increases in the state minimum wage.  It is almost like courting inflation.  The GOP should stand firm against this scheme and it should not be codified in a state constitution as New Jersey did in 2013.

In conclusion, the GOP should endorse an increase in the federal minimum wage to $8.25 per hour PROVIDED they gain Democratic concessions elsewhere AND increases are not indexed to inflation WITH the proviso that the issue will be revisited legislatively in five years.  As the voters in 2014 in red states have shown, outright opposition to increases in the minimum wage are a losing proposition at the ballot box.